Pros & Cons of Reverse Mortgages

A relatively new type of mortgage can help some consumers keep their homes out of foreclosure and even pay them a monthly stipend, but there are a few downsides.

Reverse mortgages are the perfect solution for some families but not for those hoping to pass their home or its value on to their children.

“I needed help because I didn’t have anyone else.”

Action News introduced you to North Philadelphia homeowner Jennie Haliburton back in April. She refinanced her mortgage so she could consolidate her bills but ended up with a predatory loan she could not afford and was at risk of losing her house.

“I have stress every day, my doctor can tell you that,” Jennie said. “I think about where I can go, who can I go to, who can I stay with.”

Lending experts said what Jennie should have taken out is a reverse mortgage.

“There are no monthly payments, you’re accessing monthly income and it’s tax-free,” said Rose Stancato of the Pennsylvania Association of Mortgage Brokers.

reverse mortgage is available to people 62 years or older, there are no credit checks or income verifications required.

“The borrower retains ownership of their home while receiving monthly income from the home which is tax free because they’re just accessing their own equity.”

A reverse mortgage is an adjustable rate loan against your house and ends up costing more than a traditional loan. However, the loan doesn’t become due until the borrower moves or dies.

“Once you pass away the other family members either have to come up with the money on that mortgage or sell the house. So if they’re not in a financial position to take out their own mortgage to satisfy the reverse mortgage they’re going to be in a situation where the home will not be available for them to live in anymore,” said Jennifer Schultz of Community Legal Services.

Schultz said while reverse mortgages can be a great option for some people they should be entered into with a lot of thought.

“You don’t want to do it too quickly because it’s a one-time deal. Once you take a reverse mortgage you can’t take another one.”

So the best advice is wait until you absolutely need the money.

Also a reverse mortgage has to be the first mortgage on your home so any prior mortgages have to be paid off before you can take one out. And before you sign anything go over the paperwork with an independent advisor or counselor.

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One Response to “Pros & Cons of Reverse Mortgages”

  1. Chris Plante Says:
    July 28th, 2007 at 11:47 pm

    I’m a Reverse Mortgage Consultant and I just finished a reverse mortgage in Southern California. There is a new product out now for higher valued homes (this particular one was appraised at $750,00) that gives the borrower (in this case a 70 year old got $306,700) more money than a typical FHA insured HECM (Home Equity Conversion Mortgage, which would have given her $213,900.) Not only that, but since my client took all the money out up front, there were no closing fees. Gone were the FHA Insurance fee of 2% of the first $369,790 of appraised value, the loan service fee, the set aside fee, and the origination fee that I and my brokerage earned, since the lender paid us outside of the loan. Not only that, but my client did not have to pay escrow, title, appraisal, notary, processing, underwriting, credit reports and other junk fees. The loan did not cost her a cent in fees. She qualified for $306,700 and that’s how much she got. You can find out more by contacting me at http://www.reversemortgagediscounters.com

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